Wednesday, January 02, 2013

Many newspaper stocks beat market in 2012

Part one of two.  Second part is here

After getting shellacked in 2011, a number of newspaper stocks rebounded sharply last year, with five out of nine publicly held publishers handily outpacing the broader market. 

On average, newspaper stocks rose 20.8% in 2012, as compared with a 13.4% increase in the Standard and Poor’s index of 500 shares. But the average doesn’t properly reflect the wide disparity in the industry’s performance on Wall Street.

The biggest percentage gainer last year was Lee Enterprises, which surged 61.7% after averting default on some $900 million in high-interest debt in a quickie bankruptcy. Notwithstanding Lee’s performance in 2012, its yearend closing price of $1.14 a share was nearly 98% lower than the $49 level at which it peaked in mid-2004.   

The biggest percentage loser in 2012 was GateHouse Media, whose stock fell 9.1% to close the year at six cents per share (yes, six cents), thus leaving the company's market capitalization at a paltry $3.5 million, with an M.  When GateHouse began trading as a public stock in 2006, the company was valued at $1.25 billion, with a B. This represents more than a 99% plunge in shareholder value. 

In addition to Gatehouse, two other stocks lost ground in the last 12 months. The Washington Post Co., which is battling operating losses at the flagship paper and weakness at the Kaplan educational division that actually represents a far bigger part of the business than the newspaper, tumbled 3.1%. After producing desultory sales and operating profits  in the first nine months of the year, the shares of A.H. Belo slipped 2.1%.   

The shares of every other publisher advanced in 2012.  In addition to Lee, the other stocks beating the broad market were Gannett, Journal Communications, McClatchy and E.W. Scripps. While the shares of the New York Times Co. rose in 2012, they failed to match the increase in the S&P 500. Here are the details: 

To put last year’s robust percentage gains in perspective, it should be noted that every newspaper stock exited 2012 at a fraction of the price it commanded at the end of 2006, the first year of a relentless slide that has more than halved the industry’s collective advertising revenue since topping at $49.4 billion in 2005.  

In the last six years, publishing shares on average have shed 72% of their value. Following are the percentage declines experienced by the newspaper companies that essentially include the same assets today as they did at the end of 2006. Belo and Scripps were eliminated from chart because they underwent corporate restructuring in the intervening years that makes it impossible to do an apples-to-apples comparison of the value of their shares. 

Two publicly traded companies that previously were included in the annual survey of newspaper stocks were eliminated in this year’s market analysis for the following reasons:

∷ Although News Corp.’s shares soared by 44.3% in 2012, most of the gain came after Rupert Murdoch confirmed in the summer that he would spin his newspaper holdings into a standalone venture, isolating his fast-growing and highly profitable entertainment assets in a company to be called Fox Group. With all due respect to the Wall Street Journal, New York Post and London Sun, the jump in the pre-spinoff stock seems to be attributable to investor cheer that Fox is getting out of the newspaper business. Next year, the free-standing print incarnation of News. Corp. – which reported a pro forma loss of $2 billion  in fiscal 2012 – will be included in this analysis. 

∷ Media General was removed from the annual survey because it sold most of its papers last year to Berkshire Hathaway for $142 million and certain other consideration. With $424 billion in assets, it is unlikely that the performance of Berkshire’s shares will be materially influenced by its newspaper holdings.  Accordingly, Berkshire will not replace Media General in future annual surveys. 

The boomlet in newspaper shares in 2012 occurred in spite of the fact that advertising – the primary revenue stream for newspapers – continued to contract throughout the year.  At the end of 2012, industry ad revenues were less than half of the all-time high of $49.4 billion achieved in 2005.  While final numbers remain to be compiled for the fourth quarter, a projection based on actual performance in the first nine months of the year suggests that the industry’s aggregate print and digital ad revenues will come in at about $22.5 billion for 2012. 

Although print advertising slipped throughout 2012, digital advertising, which most publishers proclaim to be the future of the industry, rose 3.6% in the third quarter of the year.  Unfortunately, as reported here, this growth rate is substantially lower than the 18% increase in the same period in over-all digital advertising in the United States.

The performance of newspaper shares last year contrasts with the battering the industry took in 2011, when publishing stocks, on average, lost nearly a third of their value at the same time the S&P 500 closed at exactly the same level it opened 12 months earlier. 

Given that the stock market is largely driven by expectations of future performance, Wall Street’s far more positive disposition toward newspapers in 2012 appears to reflect a growing confidence among at least some investors that publishers have a plan to successfully pivot their businesses away from print and into the digital realm.    

If publishers execute well on their promises, the market potentially could reward news executives and their shareholders with still higher valuations in 2013 and beyond.  If publishers falter or fail, the market’s judgment is likely to be swift and harsh.  

Next:  Behind the news-stock boomlet


Blogger Steve Ross said...

The S&P 500 is weighted by market value. The 20.8% noted in the first table is an unweighted average. Thus the comparison is not valid... although I suspect that since some of the biggest gainers were penny stocks or close to it, the weighted performance average of newspapers might not match S&P. Just removing Lee and Gatehouse (which have trivial market values) gets newspapers down to 19.2%

8:31 PM  
Blogger frank h shepherd said...

all I could think about reading your post is "down a rabbit hole".... when you dig a hole so deep your head disappears a little "stuff" around the hole will fall in giving false hope that the hole is filling in... nope... will not be done... except for the few newspapers who are in isolated markets with little competition... or the WSJ or NYT.. they are outliers.. not the "norm"...the upward movement in their stock prices are "sucker holes"...

4:34 AM  

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